Warranties as Effective Marketing Tools

Warranties: An Effective Marketing Tool

Warranties May Be Automatic

When a business sells goods, under the various State versions of the Uniform Commercial Code (UCC), implied warranties attach to the goods sold – unless the UCC’s implied warranties are specifically disclaimed in writing. If your company sells goods to customers in various States and some defective goods were discovered subsequent to the sale, one or more State’s version of the UCC’s implied warranties will apply. In the event of litigation, attorneys for each party will argue for the most favorable jurisdiction and venue. You, as the seller, could be forced to defend a legal action in the buyer’s home venue.

As a general rule, warranties are not applied to services supplied by the company supplying the service. For instance, no warranty is implied by law for a business that assists customers with the purchase of insurance policies, unless that business makes a warranty to the customer.

The Legal Aspects of Implied Warranties

Merchantability

The UCC’s Implied Warranty of Merchantability, in part, reads: “(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section, the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale…”

Fitness for a Particular Purpose

The UCC’s Implied Warranty of Fitness for a Particular Purpose reads: “Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.”

Warranty of Title and Against Infringement

The UCC’s Warranty of Title and Against Infringement reads, “(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.  (2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.  (3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.”

How to Eliminate Implied Warranties

In the majority of instances, the only way to eliminate the application of the various States’ versions of the Uniform Commercial Code to the sale of your company’s goods is to specifically disclaim the UCC’s implied warranties in writing.

Warranty Use as a Marketing Tool

Patented Product vs. Generic Product

As CEO of your company, you believe that invention is the lifeblood of the company and you have budgeted ten percent of annual sales for development, improvement and Patent procurement for the company’s new products. The company’s engineers have developed the third-generation widget which is patented and has also just received FDA approval. The company’s second-generation widget’s Patent expired years earlier and is currently manufactured by generic company competitors. Users of the second generation widget love the operation of the second generation widget manufactured by your generic competitors. Those users also like the price that is several thousand dollars less than what your company sold the second generation widget for before the Patent expired. Other than the UCC’s implied warranties and any other warranty required by law, the generic manufacturers offer no other warranties.

Competing with Generics

Your company’s patented third-generation widget includes radio frequency capabilities, memory, processing means, sensors, etc. not included in your second generation widget. FDA testing revealed that over a span of years, the patented third-generation widget is more durable than the second generation widget. The third generation widget performs healthcare functions impossible for the second generation widget to perform. Costs of the patented third-generation widget to the user are thousands of dollars more than the generic second-generation widget. Your company struggles to have its patented third-generation widget regain and improve its former market share previously achieved with its second generation widget.

Improving Market Share With Warranties

To improve the company’s market share of its patented third-generation widget, the CEO took instruction from the motor vehicle industry. The CEO opted to provide a ten year “bumper to bumper” warranty and commenced advertising that the patented third-generation widget was sold under warranty. The advertisement touted a limited ten-year warranty and superior performance compared to other widgets. Over the years, the marketplace has revealed that for high “price point” goods, generous warranties can improve sales.

Limited Warranties in Lieu of UCC Warranties

A business can offer a limited “bumper to bumper” warranty for its new product while expressly disclaiming the States’ Uniform Commercial Code’s implied warranties and other conditions. Depending on the type of goods and other facts, it is also possible for a business to expressly place limits on liability.

If you have questions about intellectual properties, warranties, and disclaimers, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

 

Physician Sunshine Laws and Your Business

Physician Sunshine Laws And Your Business

Physician Sunshine Laws and Small Businesses

Does 42 U.S.C. 1320a-7h, known commonly as the “Physician Sunshine Laws-Open Payments” apply to a small business?  Maybe. If Physician Sunshine Laws (Open Payments Laws) are applicable to your business, you may also be surprised how these laws can be applied to your company.

Some States have their own version of physician sunshine laws. In some cases, the State version may apply when the federal version does not.

Many Business Patent Law, PLLC’s clients are involved with the provision of medical devices, supplies, etc. For most Business Patent Law clients, the Physician Sunshine Laws apply to an “applicable manufacturer” that “provides payment or other transfer of value” to a “covered recipient.”

Who Administers Physician Sunshine Laws?

CMS.gov (Centers for Medicare & Medicaid Services) is the Federal Agency that Administers Physician Sunshine Laws (Open Payments). 42 U.S.C. 1320a-7h (b) sets forth penalties for failing to file a required report to CMS.gov.

Who Needs to Report to Under Physician Sunshine Laws?

Subchapter S Company Examples

Does a Subchapter S Company that Manufactures Surgical Sponges for Use in Operating Rooms and Gives Samples of the Surgical Sponges to Medical, Surgical and Dental Practices Need to Report to CMS.gov?

Yes, according to 42 U.S.C. 1320a-7h (e) which reads:

(2) Applicable manufacturer

The term “applicable manufacturer” means a manufacturer of a covered drug, device, biological, or medical supply which is operating in the United States, or in a territory, possession, or commonwealth of the United States.

(4) Covered device

The term “covered device” means any device for which payment is available under subchapter XVIII [Medicare] or a State plan under subchapter XIX or XXI [federal or state plans for medical assistance] (or a waiver of such a plan).

(6) Covered recipient

(A) In general…“covered recipient” means the following: (i) A physician [is a doctor of medicine or osteopathy, a dentist, a doctor of podiatric medicine, a doctor of optometry or a chiropractor – as defined by 42 U.S.C. 1395x (r).] or

(ii) A teaching hospital.

LLC Examples

Does a Limited Liability Company (LLC) Manufacturing and Selling Scalpels Need to Report to CMS.gov?

  1. If the LLC makes quid pro quo sales to dentists, physicians and hospitals? No. (There is no transfer of value or gift.)
  2. If the LLC supplies lunches for the surgical office and the employees? Yes. (The lunches were a transfer of value.)

Does an LLC (having one or more covered recipients holding a minority equity ownership interest) that manufactures radio frequency devices for treatment of the human body need to report equity ownership Interests to CMS.gov? 

It depends.

  1. If a dentist owns 5% equity in the LLC? Yes.
  2. When the wife of a surgeon owns 10% equity in the LLC? Yes. ***
  3. If a pharmacist owns 5% equity in the LLC? No.
  4. When a physician’s assistant owns 5% equity in the LLC? No.

***42 U.S.C. 1320a-7h (a) reads:

(2) Physician ownership

In addition to the requirement under paragraph (1)(A), on March 31, 2013, and on the 90th day of each calendar year beginning thereafter, any applicable manufacturer or applicable group purchasing organization shall submit to the Secretary, in such electronic form as the Secretary shall require, the following information regarding any ownership or investment interest (other than an ownership or investment interest in a publicly traded security and mutual fund, as described in section 1395nn (c) of this title) held by a physician (or an immediate family member of such physician ([immediate family member] as defined for purposes of section 1395nn (a) of this title)) in the applicable manufacturer or applicable group purchasing organization during the preceding year:…

Determining what you need to do in these situations, and what you are legally required to do, can be difficult. If you have questions about your whether your company needs to file reports with CMS.gov, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Entrepreneurs Small Business Startup Advice

Advice for Entrepreneurs and Small Businesses

Entrepreneurs and Small Businesses

In the United States there are approximately 29,000,000 small businesses. Most of these small businesses are founded by one or more entrepreneurs. One US Small Business Administration (SBA) measure for defining a small business is: a small business has 500 or fewer employees. According to the SBA, of these 29 million small businesses, approximately 23,000,000 small businesses do not have any employees.

In the United States, approximately one-half of all jobs are supplied by small businesses, so there is a correlation between more small businesses and increased availability of jobs.

Entrepreneurs Create Small Businesses

First, the entrepreneur conceives the invention/product/service and/or business model. Then that entrepreneur will develop a method to commercialize the invention/product/service. According to the SBA, each year more small businesses “are birthed than die.” Over the years, BPL has witnessed entrepreneurs who fail to realistically approach the problem of anti-commercialization forces that result in the death of small businesses. At the same time, those entrepreneurs who do persist can create small businesses that have 100 or more employees with annual sales of 200 million dollars or more.

The owners of a $200MM small business usually have a group of trusted advisors in place, but what about startups?

Entrepreneur Advice and Startup Considerations

If you are one of the 23 million small business owners, entrepreneurs or start-ups, you should:

  • Think and rethink the invention/product/service
  • Discover competitors and discern how your invention/product/service is different – your market niche is likely narrower than you originally thought
  • Determine how to make a profit in your niche market
  • Seek and listen to the advice of other successful small business owners
  • File Intellectual Property Applications – if your market and price point(s) justify the filings
  • Patents owned by startups provide the owners a limited monopoly to prevent others from making, using, offering for sale or selling their patented invention
  • Investors appear to like small businesses with Intellectual Property portfolios
  • Prepare a business plan
  • Commence assembling your team of trusted advisors – mentors first – then accountants, attorneys, engineers, insurance professionals, investors, lenders, and scientists, etc.

Many small business owners reap large financial rewards when the small businesses are sold to a third party.

Get Help With Your Small Business Venture

Business Patent Law, PLLC would like to assist you with your small business or Intellectual Property needs.  Please contact Business Patent Law, PLLC and we will discuss possibilities for your business.

If you would like to stay up-to-date with news that impacts your Intellectual Property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Bylaws and Operating agreements for LLCs

Operating Agreements

Operating Agreements And Bylaws

Operating agreements for LLCs, or bylaws for C-corporations, are essential for successful companies. CEOs know the combination of market and governmental forces influence their company’s “up-and-down” cycles. Highly qualified directors for a corporation or members of an LLC can provide helpful advice for management. However, such advice is weighed under the purview of the company’s operating agreement or bylaws.

Operating Agreements Assist In Navigating Business Cycles

Frequently, an LLC is organized by the joint inventors of a widget. The articles of organization are filed with a Secretary of State, but the joint inventors failed to have an operating agreement in place prior to selling widgets. Sometimes the widgets (that may begin as an experiment in someone’s garage) become a multi-billion dollar international company.

Since human memories are faulty, particularly under the stress of managing a new startup, operating agreements help keep the members focused on the company’s business and profitability. Without an operating agreement, the transition from an LLC startup to an international company can be painful for the joint inventors/owners.

Key Provisions

The founders of the LLC may consider an Operating Agreement that addresses some of the following:

  • Goals for sales and profitability
  • Declaration of each member’s ownership interests in the Intellectual Properties
  • Maximum quantity and type(s) of equity units
  • Type of equity units issued for a member’s capital contributions to the LLC (e.g., licensed/leased, sweat equity, transfer of title, working capital, etc.)
  • Qualifications for membership and maximum number of shareholders (Note: membership may be limited to certain classifications of investors as defined by the federal securities acts and regulations)
  • Vesting of members rights and privileges
  • Day-to-day management of the LLC–by members or nonmembers–and restraints to management’s authority
  • Annual and/or special meetings–quorums, majority, supermajority
  • Milestones for ceasing operations or selling the LLC–asset purchase agreement, bankruptcy, equity sale, merger, re-branding the company, etc.
  • Requirements for a withdrawing member or the estate of a deceased member
  • Conditions for forced withdrawal of a member from the LLC

The success of your business and its Intellectual Properties are directly related to sales, profitability and current/future market value. A well drafted operating agreement (bylaws) can make the road to achieving your goals less bumpy.

If you have questions about Intellectual Property matters, an operating agreement or the organization of a Limited Liability Company, please contact Business Patent Law, PLLC . We welcome the opportunity to discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your Intellectual Property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.